1. What is Investing?
Investing, in simple terms, means putting your money into something with the hope of getting "more money back" in future. For example, it is like planting a seed and watching it grow into a tree over a period of time.
However, it's crucial to exercise caution and conduct thorough research before planting your seed. Factors such as soil quality, water retention, sunlight exposure, and soil nutrition must be carefully considered to ensure you can fully reap the benefits of the tree in the future.
In the world of Investing, this type of research is commonly referred to as "due diligence".
2. Why should you Invest?
Investing can be a great way to grow your wealth over time, but it's important to understand the basics before you get started. Some of the most important terms to know include Assets, Liabilities, Risk, Rewards/Returns, Dividends, Capital Gains, Due Diligence.
But before we get into the Nitty-Gritty of Investing Terminology, let's take a moment and discuss the importance of investing.
Investing can be beneficial for many reasons, including beating inflation, achieving financial goals, generating passive income, and capital appreciation. It can also help you plan for retirement and take advantage of the power of compounding, which is often referred to as the "seventh wonder of the world".
Now, let's delve into the Investing world's terminology. An asset is something that generates income or puts money into your pocket, as mentioned in "Rich Dad Poor Dad." On the other hand, a liability takes money out of your pocket.
Risk refers to the amount of money you are willing to potentially lose if something bad happened to the business you are invested in, while reward represents the appreciation on your assets, stocks, or equity.
Dividend is the interest that businesses pay to the investors on their vested amount, distributed either quarterly or monthly. Capital gains, calculated as "Appreciated Price/Share - Principal Price/Share", are the profits obtained when selling your investments partially or completely.
Due diligence involves conducting thorough research, learning to read a business's financial documents, understanding their management, and acquiring as much information as possible before making investment decisions.
3. What are the benefits or advantages of Investing?
Investing provides an opportunity for your money to grow over time through the potential appreciation of the assets you invest in. Unlike keeping your savings in a regular bank account, where interest rates are often low, investing in assets like stocks, real estate, or businesses can potentially generate higher returns. These assets have the potential for capital appreciation, which means their value can increase over time, allowing you to sell them for a higher price than you initially paid.
For example, if you invest in stocks of a company and its value grows over the years, the price per share may increase, and you can sell those shares at a profit. Similarly, investing in real estate can lead to appreciation in property value, providing an opportunity for higher returns when you decide to sell the property.
However, it is important to note that investing is not without risk. The value of your investments can go down as well as up, and you could also lose money. Therefore, it is important to do your research and invest wisely.
4. How to get started?
To start investing, you first need to determine your Financial Goals, Time Horizon and Risk Tolerance. Once you have a clear understanding of these factors you can open a brokerage account or use an online app. Some of the leading brokerage companies include Vanguard, Fidelity, Charles Schwab and many more. Likewise some of the online apps include webull, moomoo, Robinhood and many more.
You don't need to Invest a lot of money to get started. Even a small amount of money can grow overtime, so start with a small amount of money.
Invest for the long term. The Stock market is very volatile in short term, so it's important to invest for the long term. This means not panicking and selling your investments when the market takes a downturn.
With proper due diligence, Investing in a good or profitable company(ies) or a business(es) can be a great way to grow your wealth over time. However, it's important to research thoroughly and understand the risks involved before you get started.
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